Central banks could soon issue digital currencies for cross-border payments.
Researchers are working together to explore the possibility of using digital currencies issued by central banks for cross-border transactions.
The launch of a joint experiment between the Federal Reserve Bank of New York's New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) to test the feasibility of wholesale central bank digital currencies (wCBDCs) for cross-border payments is a significant development in the world of central banking. This experiment will provide valuable insights into the potential of wCBDCs to streamline cross-border payments and make them more efficient. It will also help to inform policymakers about the potential risks and benefits of using wCBDCs for this purpose.
The MAS' announcement of the launch of Project Cedar Phase II x Ubin+ is a positive step forward in the potential use of wCBDCs as a settlement asset in cross-border cross-currency transactions. If successful, this could reduce settlement risk and improve efficiency in these types of transactions.
The experiment is designed to test the concept of "interoperability" which is essential for the success of future digital currencies. According to Leong Sing Chiong, Deputy Managing Director at MAS, the experiment is a success so far and has the potential to revolutionize the way we use money.
“The project takes a practical approach and designs for any future wholesale CBDC to be interoperable across networks, while maintaining each network’s autonomy.”
It is encouraging to see that the Federal Reserve is taking an active interest in exploring the potential of a Central Bank Digital Currency (CBDC). However, it is important to note that the Project Cedar Phase II x Ubin+ is only a research initiative at this stage. The findings of the project are not expected to be released until 2023, so any decisions on issuing a CBDC are still some way off.
The New York International Capital (NYIC) released a report on the first phase of their Project Cedar initiative. In this first phase, transactions were made between different currencies on different ledgers through a permissioned blockchain network. This network uses an unspent transaction data output model, which allows for more efficient transactions. This first phase is a positive step forward for the NYIC and their Project Cedar initiative.
The Boston Fed's Project Cedar and MAS' Ubin+ initiative are both working to improve cross-border digital currency settlements. This will help to reduce risks and improve efficiency in the global foreign exchange market.
The Fed still has no plans to issue a CBDC, but it is investigating the possibility of using a digital currency for foreign exchange spot settlement. This would be a major development for the global financial system, and it is encouraging to see the Fed taking a proactive approach to investigating this potential use case for a digital currency.